SAS results hit badly by rising fuel costs

Scandinavian airline SAS said rising fuel costs pushed it further into the red in the first quarter with a loss of 1.13 billion kronor ($188 million), up sharply from 47 million kronor a year earlier.

In the January-March period, it also posted an operating loss of 872 million kronor compared to a profit of 12 million kronor, the carrier said, adding that increased competition also played a part.

Sales however rose 7.9 percent to 12.83 billion kronor, with passenger numbers up 2.6 percent to 7.3 million.

“The negative earnings trend we experienced in November and December last year continued in the first quarter of 2008,” chief executive Mats Jansson said in a statement.

“The primary reason for this is the rapid rise in jet fuel prices to record high levels that could not be offset while unit earnings fell as a result of further intensification of competition,” he added.

He said there was “a certain overcapacity in the market” and tendencies toward a decline in business travel.

Jansson stressed that the first quarter was traditionally weak and said that the global economic downturn had made the financial situation more difficult.

SAS said it was extending an action plan announced in February and now aimed at generating savings in 2008 of 1.1 billion kronor.

It also said it would reduce capacity by 11 aircraft, or five percent of its fleet, later this year, and would not implement its planned increase of one long-haul aircraft.

“We continued to incur increasing expenses as a result of the Q400 problems, but the amount of compensation received from (Canadian aircraft manufacturer) Bombardier will mostly offset this during the quarter,” Jansson said.

In October, SAS announced that it was removing from service 27 of its Dash Q400 regional planes made by Bombardier after a series of incidents linked to the landing gear.

The planes accounted for about five percent of passenger traffic in the SAS group — which includes SAS Denmark, SAS Sweden, SAS Norway, Spanair, airBaltic, Blue1 and Wideroe — and 15 to 20 percent of traffic for SAS alone.

Bombardier agreed to pay SAS compensation of around one billion kronor in cash and credit for future aircraft purchases. As part of the agreement SAS agreed to order 27 aircraft, with an option for 24 more.

SAS said it expected the negative impact of the Q400 problem to amount to 700 to 800 million kronor in 2008.

SAS’s share price was down 2.35 percent at 49.80 kronor in late morning trade on the Stockholm stock exchange, while the blue-chip OMX30 index was off 0.74 percent.